Legal/Regulatory

PoolCorp Lawsuit Enters Next Phase

In a class-action lawsuit involving mega-distributor PoolCorp and the “Big Three” manufacturers, a judge has upheld part of a motion to dismiss, but rejected another portion, meaning the case will move forward.

“We know that the allegations are not true, but that’s something that will surface through discovery, which is now under way,” said PoolCorp President Manuel Perez de la Mesa.

PoolCorp is accused of violating Sections 1 and 2 of the Sherman Anti-Trust Act. The first section prohibits restraint of trade and the second bans monopolies. The class action was originally filed in 2011 and consists of a number of lawsuits that have been consolidated. It involves two sets of plaintiffs and two sets of defendants.

On the plaintiff side are pool and spa dealers and distributors called “direct purchasers” and consumers called “indirect purchasers.” This second group resides in Arizona, California, Florida and Missouri — the only states where consumers can sue for Sherman Act violations.

Originally, the suits were filed only against Covington, La.-based PoolCorp, but last year the manufacturers — Pentair Aquatic Systems, Sanford, N.C.; Hayward Pool Products, Elizabeth, N.J.; and Zodiac Pool Systems, Vista, Calif. — also were named.

The direct purchasers claim PoolCorp has competed unfairly by pressuring manufacturers to avoid doing business with other distributors, especially new companies trying to enter the market. They also allege that PoolCorp purchased competitors for the purpose of shutting them down. The consumer group claimed that prices have been artificially raised as a result of this alleged behavior.

The manufacturers were only included in the Section 1 accusations. Both groups accuse the manufacturers of cooperating with PoolCorp, thus making it impossible for smaller players to purchase and sell product.

The April decision to partially approve the motion to dismiss only affected the industry complaints. The court has yet to decide the motion as it applies to the consumer complaint.

In its motion to dismiss, PoolCorp said the monopolization claims didn’t hold because the company doesn’t have enough market share to constitute a monopoly. Court documents cited sources saying the distributor holds approximately 33 percent market share, and the law generally requires it to be more than 50 percent. Judge Sarah S. Vance of the U.S. District Court in eastern Louisiana agreed on this count and removed the monopolization portion of the suit.

“Conduct is rarely sufficient to show monopoly power without the existence of a high market share,” Judge Vance said.

However, she said the plaintiffs had adequately pleaded their accusations of attempted monopolization, stating among other things that if the claims about PoolCorp’s behavior are true, it is possible the distributor purposely sought to squelch competition, and that there could be a “dangerous probability of monopolization.”

“[PoolCorp’s] alleged establishment of an artificial barrier to entry is the type of ‘invidious conduct’ that can elevate a firm with a market share of less than 50 percent to a dangerous probability of monopolization,” she said.

Such alleged behavior combined with PoolCorp’s size and market dominance could potentially prevent others from entering the market, the judge concluded. However, she added, it will not be enough if the plaintiffs prove that PoolCorp and the manufacturers engaged in such conduct. It also must be shown that the alleged behavior damaged competitiveness in the industry.

In the motion to dismiss, PoolCorp also stated that the allegations were not specific enough and didn’t describe antitrust behavior. The distrubutor argued that vertical agreements — those involving companies in different levels of the supply chain — are not inherently illegal. The judge allowed the claim to be part of the case, but here, too, said the plaintiffs must prove not only that such behavior occurred, but also that it damaged the market.

Attorneys on both sides said they were satisfied with the ruling.

“Our clients are very pleased with the decision,” said PoolCorp’s attorney, David Bamberger of DLA Piper’s Washington, D.C., office. “We think the judge has substantially reduced the scope of the case, and as to the remaining claims, we intend to continue to defend them vigorously.”

Similarly, one of the attorneys for the direct purchaser plaintiffs said he felt the ruling went his clients’ way. “We’re pleased by the decision because the court refused to dismiss any of the defendants, upheld the Section 1 claim and upheld one of the Section 2 claims,” said Robert N. Kaplan of Kaplan Fox & Kilsheimer’s New York office.

Both sides may have the option of refiling complaints or motions to dismiss to address the shortcomings raised by the judge. However, the attorneys would not say if they would do that.

Neither the manufacturers nor their attorneys would comment on the case, citing policies against addressing pending litigation.

About the Author

Rebecca Robledo is an award-winning trade journalist with more than 25 years experience reporting on and editing content for the pool, spa and aquatics industries. She specializes in technical, complex or detail-oriented subject matter with an emphasis in design and construction, as well as legal and regulatory issues. For this coverage, she has received numerous awards, including four Jesse H. Neal Awards, considered by many to be the “Pulitzer Prize of Trade Journalism.”